December 17, 2025

Required Minimum Distribution Penalty Relief

The IRS waived your RMD penalty, but only if you know this obscure loophole.

By Dan Cashion • 8-year retirement specialist, Charles Schwab & TD Ameritrade

Let's start with the part everyone's afraid of.

You missed a Required Minimum Distribution (RMD).
You Googled it.
You saw "25% penalty" (or the old 50% penalty), and your stomach dropped. Full breakdown: RMD Mistakes & Fixes (full penalty correction process).

Then you probably thought:

"Well… that's it. The IRS is about to repossess my soul."

Here's the part most people don't know:

The IRS built an off-ramp for this exact situation.
And almost nobody talks about it.

The Penalty Everyone Knows About (and Panics Over)

If you fail to take an RMD—or don't take enough—the IRS can assess an excess accumulation penalty:

25% of the amount you should have taken

Reduced to 10% if corrected timely

Historically 50%, which still lives rent-free in people's heads

That's the scary headline.

What doesn't get nearly enough attention is the relief process that exists by design.

Enter: "Reasonable Error" (Yes, That's the Actual Term)

The IRS recognizes that RMD mistakes are often:

Administrative

Confusing

Caused by bad or incomplete information

Or simply missed during a year with way too much going on

So they allow penalty relief when the failure was due to reasonable error and you take steps to fix it.

This is not a loophole.
It's not aggressive.
It's literally in the rules.

How the Fix Actually Works (No, You Don't Call the IRS First)

Here's the practical process:

1. Take the Missed RMD

As soon as you realize the mistake, take the distribution.

Not later.
Not "next year."
Just fix it.

2. File Form 5329

This is the key form most people have never heard of. This is the beg for forgiveness form.

Form 5329 is where you:

Report the missed RMD

Request a waiver of the penalty

Show that you corrected the issue

If you're requesting relief, you generally:

Enter the shortfall

Enter zero as the penalty

Write "RC" (reasonable cause) next to the penalty line

Yes, really.

3. Attach a Letter of Explanation

This is where people panic—but it's far simpler than they expect.

The letter should explain:

What happened

Why it was reasonable

What you did to fix it

What you'll do to prevent it going forward

No legal briefs.

No sob stories.
No over-sharing.

Just facts.

Example reasons that routinely qualify:

First year subject to RMDs

Conflicting or incorrect custodian information

Death, illness, or major life disruption

Misunderstanding inherited IRA rules (a huge one)

Believing another account or person handled it

This is not about perfection. It's about showing good-faith effort.

The Quiet Truth: Relief Is Commonly Granted

Here's the part nobody advertises:

The IRS routinely waives these penalties when the process is followed correctly.

Most people who get hit with the penalty:

Never knew relief existed

Never filed Form 5329

Or were told "there's nothing you can do"

That's simply not true.

Why So Many People Don't Know This Exists

A few reasons:

RMD rules are taught as punitive, not corrective

Custodians often say "we can't give tax advice" (fair—but incomplete)

Tax software doesn't always surface the waiver option clearly

Fear stops people from asking questions once they see "25%"

So the penalty becomes mythical instead of procedural.

What This Means for You (or Your Parents)

Missing an RMD is a problem.

It is not automatically a financial catastrophe.

The system allows for:

Fixing the mistake

Explaining it

Moving on

But only if you know the process exists.

Final Thought

The IRS is many things.
A mind reader is not one of them.

If you don't ask for relief, they won't guess that you meant well.

Disclaimer

This content is for educational purposes only and is not tax or legal advice. Individual circumstances vary, and you should consult a qualified tax professional before taking action.

Frequently Asked Questions

What happens if I miss taking my required minimum distribution from my retirement account?

The IRS can assess a penalty of 25% of the amount you should have taken, which reduces to 10% if you correct it quickly. However, the IRS has a built-in relief process for reasonable errors that most people don't know about.

What qualifies as a 'reasonable error' for RMD penalty relief?

The IRS recognizes that RMD mistakes are often administrative, confusing, caused by bad or incomplete information, or simply missed during busy periods. These types of situations can qualify for penalty relief if you take steps to fix the error.

Do I need to call the IRS immediately when I discover I missed an RMD?

No, you don't call the IRS first. The first step is to take the missed RMD distribution as soon as you realize the mistake - don't wait or delay this step.

Is using the penalty relief process considered aggressive tax planning?

No, this is not a loophole or aggressive strategy. Penalty relief for reasonable RMD errors is literally built into the IRS rules by design, recognizing that these mistakes often happen for legitimate reasons.